The Spending Hangover

This New Year’s, there may be more to recover from than just one night of eating and drinking too much.  Many of us may find ourselves recouping from another ailment as well . . . 

I call it “The Spending Hangover.”

As with any hangover, first there’s the party! From Black Friday to post-Christmas sales, all is good and fun and we are encouraged to spend, spend, spend.  We load up our carts with everything from wrapping paper and party outfits, to the hottest new toys and gifts.  Then we top it all off with a bottle of bubbly on New Year’s Eve. 

But soon thereafter, the credit card bill arrives and, for many of us, it isn’t pretty. 

And just like a person who overeats and resolves to go on a diet, our tendency to overspend around the holidays often leads to resolutions around tighter budgets and tracking spending.  Resolutions like these are great but just like a diet, they can easily fail without proper planning and guidance.

So this New Year’s, if your spending went haywire over the past few weeks and you are determined to make amends in 2013, here are a few tips to make your financial goals more achievable for the long-term:

1.     Make Budgets Flexible:  Budgets and tracking spending are essential at the onset of any financial plan, especially for someone who needs to get a better handle of where all their money goes.  But having budgets that are very detailed often fail because they are too restrictive.  While it may work for the first month or two, you may find that tracking every penny and categorizing each item on your credit card becomes overwhelming and unproductive.

Instead, it may be more manageable to create “buckets” around larger spending categories such as  “non-discretionary expenses,” “credit card payments” or “monthly savings.”  Using larger categories provides greater flexibility and creates a sense of freedom and choice rather than one of limitations and sacrifice, thus increasing the likelihood of long-term success.

2.     Have a System:  Often, people create budget resolutions in January and then file away their subsequent spreadsheets never to be looked at again.  Revisiting your plan regularly throughout the year is essential, typically on a monthly or quarterly basis.  If possible, commit to the dates on your calendar now, say the last Sunday of every month, so they are scheduled ahead of time and anticipated.

3.     Start Small:  It may be tempting to go cold turkey in January and vow to cut up your credit cards as a result of spending-gone-wild over the holidays.  But be careful you do not create a pattern of overspending and underspending, only to overspend again in February because you can’t keep up.  It may be more beneficial to take smaller steps.  Slashing your spending 50% may not be realistic whereas agreeing to order take-out one less night a week may be.  The small successes will give you a sense of accomplishment and motivation for larger goals later on. 

4.     Follow the News:  Budgets and understanding your cash flow are only one piece of a very large financial puzzle.  While you don’t need to go out and get a PhD in Economics or understand the labyrinth of laws that make up our tax code, some general knowledge is essential.  This is especially important given all the changes around the fiscal cliff and tax rates that will certainly affect your bottom line.  When you do your scheduled monthly or quarterly check-ups, use part of that time to read one article on personal finances that applies to you.  The extra five minutes may make a huge difference in your financial plan. 

5.     Outsource:  If you find that your finances are just too complex– or after an honest assessment, it is clear that you have zero interest in any of the above and you’d rather focus on nurturing your more traditional hangovers– it may be time to find someone else to do it for you, such as another family member or advisor.  If you need an advisor, make sure that you do your due diligence as they vary widely in their services, experience and fee structures.  Either way, getting your financial house in order is just too important to ignore altogether and if you simply cannot or choose not to do it yourself, delegate the task to another person. 

So with the holidays behind us, and January calling us to start anew, here’s wishing  these few tips can help you recoup from last year’s money hangovers toward a financially healthy and prosperous 2013!